INFLATION

A few years ago, when inflation was raging out of control in Zimbabwe, and it took a "wheelbarrow" full of money to buy a loaf of bread, my older son bought me one of the higher denomination bills off the Internet. He paid a few dollars for it and shipped it to me as a present. It is a real bill, with engraving similar to what appears on other nation's currencies, and to this day I keep it in a frame and enjoy looking at it.

The amount of this bill, issued by Zimbabwe, is the staggering sum of $100 billion dollars! I believe things eventually got even worse in Zimbabwe, and the Government was compelled to issue bills in denominations so large that a $100 billion note no longer seemed impressive. I was always hoping that someone would need a net worth statement from me but fail to specify that the aggregate dollar amount should not include any Zimbabwe dollars.

For me the existence of that bill is a tangible reminder that the hyper-inflation that occurred in Weimar Germany during the 1930's was very real and could actually occur again. It also makes me more understanding of German Chancellor Angela Merkel and her counntry's resistance to policies which generate inflation.

Notwithstanding the foregoing and recognizing that I have only a rudimentary knowledge of economics, I am convinced that inflation is going to be embraced by the West, and that inflation is unfortunately one of the few remaining tools available to dig the world out of its financial morass. With inflation, overburdened debtors need not default; their bills are more easily repaid with depreciated currency. If Greece retained the drachma, for example, it could keep its printing presses running until its debts were paid off. This approach could easily set off a host of new problems, as my $100 billion note demonstrates, but literal default would not be one of them.

Distinguished economists like Paul Krugman have already advocated a limited inflationary approach. The US Government and the Fed have watched inflation erode the value of our greenbacks for decades. I believe there is no other way to make a meaningful dent in our $16 trillion national debt. Paying off in depreciated dollars, however, would provide some relief for an otherwise hopeless situation. The entire Western world is trapped in the same situation. Everyone-- governments, businesses, and individuals-- have relied too much on credit and created unmanageable mountains of debt.

I think we will eventually start seeing calls for controlled inflation, or policies which produce the same result without labeling it for what it is. People on fixed incomes will suffer the most.